If Climate Change ends Capitalism, what good are Climate Economists?

Since the 1970s, when he essentially founded the economics of climate change, William Nordhaus had been considered its preeminent authority. According to a fellow economist, the optimal economic policy had for decades been simply “what Bill Nordhaus said." This view had been unquestioned, said a 2013 article, “until 2006, when the British government published a new review of climate change, led by Sir Nicholas H. Stern.”

Stern, a professor at the London School of Economics, had served as the Chief Economist of the World Bank. The review that he led was published as The Economics of Climate Change: The Stern Review, usually called simply the Stern Review. This publication, which gave the world a radically different view of the economics of climate change, led to a new era in the field – a transition from the Nordhaus era to the Stern era.

“In the era before the Stern Review,” say Frank Ackerman and Elizabeth Stanton, “economic models of climate change were typically framed as cost-benefit analyses.” This framing has been preeminently exemplified by Nordhaus. Although he called global warming “the major environmental challenge of the modern age,” he did not express a sense of urgency about it. In his 2008 book, he said: “Neither extreme – either do nothing or stop global warming in its tracks – is a sensible course of action.” The central question, Nordhaus said, was: “How to balancecosts and benefits.”

One especially startling statement came in a discussion about the sea-level rise that would be caused by the melting of the Greenland and Antarctic ice sheets: “Although it is difficult to envision the ecological and societal consequences of the melting of these ice sheets,” Nordhaus said, “this situation is clearly highly undesirable and should be avoided unless prevention is ruinously expensive.” It is startling to suggest that, if we find avoiding the melting of these ice sheets “ruinously expensive,” we should just let them melt.

Nordhaus’s 2013 book expressed a somewhat greater sense of urgency. Nevertheless,he continued to focus on cost-benefit balance, saying that “good policies must lie somewhere between wrecking the economy and wrecking the world."

According to the Stern Review, by contrast, climate change “demands an urgent global response,“ because “what we do in the next 10 or 20 years can have a profound effect on the climate in the second half of this century and in the next.” The Review, however, did not reject the cost-effective approach. It simply said, in one of its most quoted statements: “The [economic] benefits of strong, early action on climate change outweigh the costs.”

The analyses of climate change by economists, say Ackerman and Stanton, have “rarely portray[ed] the most recent advances in climate science.” Instead, they tend to be “out of date by several years, if not decades.” With Nordhaus primarily in mind, they said in an article with Ramón Bueno, “there is no reason to cling to outdated, unduly rosy estimates, rather than following the best, most recent findings of climate scientists.”

Fortunately, say Ackerman and Stanton, “the Stern Review broke new ground by synthesizing the current knowledge in climate science and setting a new standard for good climate-economics analysis, using up-to-date inputs from climate science.”

Although Nordhaus has not been guilty of science denial – indeed, he has publically debated with deniers – his analysis, Stanton, Ackerman, and Ramón Bueno, have written, “could be called risk denial – accepting a (very optimistic) picture of the most likely climate outcomes, but paying little or no attention to worst-case risks.” This risk denial is dangerous, they said, because “[w]hen climate economists – and the policy makers they advise – fail to understand the well-established findings of climate science, the result is likely to be too little emission reduction, too late.”

In spite of the growing scientific consensus over the decade that sea-level rise will be catastrophic for people and agriculture, Nordhaus continued to exude optimism, saying that “human societies can adapt to [sea-level rise] without catastrophic losses.” Because most poor countries will in the future be much richer, he advised, they “will be able to protect themselves against climatic extremes just as Miami and Rotterdam do today.” When that is impractical, people can simply migrate.

Stern’s 2013 writings expressed a very different picture of what climate economists should be doing. Although the Review had already said that the “economics of risk” should be made central, his new writings put even more focus on it, saying that economists must present climate change as “a problem of risk management on an immense scale,” which most economists had not done.

Stern’s approach to climate economics is a return to that pioneered by William R. Cline, who in 1992 published the first American book on the subject – The Economics of Global Warming – which favored “an aggressive course of abatement.” Aggressive abatement, he said, was “justifiable on economic grounds alone.” He differed with Nordhaus on this point, he said, mainly because of the latter’s “excessive total discount rate.”

Employing a 6% discount rate as an example of one that is much too high, Stern pointed out that in 100 years, a unit of benefit would be valued 339 times lower, meaning we would care 339 times less about people alive 100 years now than we care for the present generation. This comes close to saying, Stern said, “forget about issues concerning 100 years or more from now.”

The primary basis for advocating high discount rates, said Stern, is “the unwarranted assumption that future incomes will almost certainly be much higher than now.” This assumption “is simply not credible.” Economic modelers such as Nordhaus, he said, need to factor in the possibility that global warming will create “an environment so hostile that physical, social, and organizational capital are destroyed.”

David Ray Griffin is Professor of Philosophy of Religion and Theology, Emeritus, Claremont School of Theology and Claremont Graduate University (1973-2004); Co-Director, Center for Process Studies. He edited the SUNY Series in Constructive Postmodern Thought (1987-2004)